Feasibility analysis

Before committing funding to your proposed venture, you must decide whether it is viable. You need a detailed understanding of:

  • your product or service
  • the industry you will be competing in
  • the nature of the market
  • the amount of capital needed to kick-start the venture.

Consider the following:

Product safety

Product safety is an important factor in determining the technical and market feasibility of your idea. If there is any potential risk to the wellbeing of the user, no matter how remote, you should obtain legal advice early in the development process.

If there are product safety issues not only will you have difficulty in attracting investors, but you may also experience commercialisation difficulties through relevant international laws and regulations, industry standards, and expensive liability insurance.

Market gap

Filling a viable gap in the market is key to the success of your new product or service. Your product or service should be unique, solve an existing or potential problem, and provide an incentive for your customers to switch to it – be it quality, price, or improvement. Know the competitors (either direct or indirect) in your target market, and how your invention or product compares on functionality, durability, appearance and price.

Keep research and development (R&D) time short

Most investors are seeking relatively short-term returns on their investment (i.e. 12 months to 3 years) so keep your R&D timeline as short as practicable. Long lead times can be offset by the promise of exceptional returns on investment over the medium to long term.

Keep R&D simple

Technical problems need to be considered at an early stage. Visualise and detail what you expect will be the completed format and design of the product or service. Estimating production costs will help determine if you can produce and sell the product profitably.

Dependence on other products

If your idea is dependent on linkages with other products or systems (e.g. hardware that requires software to drive it), this could affect its marketability or technical feasibility. Market failures, competitive pressures or unexpected developments in those products or systems may undermine your marketing efforts.

Customer usage

Make sure your idea can be translated into a usable or user-friendly product or service. Technical complexity, or cost restrictions can prevent it from being built and marketed in the way it was intended for use. Your goal should be to produce a functional product or service, and to produce it in a way that it becomes attractive to the consumer, within the price points the market can bear.

Pressure from the competition

Competitive pressures are among the major reasons new products or services fail. Established market leaders have the ability to assert massive financial pressure on new product entrants through pricing strategies, promotion and preferred supplier arrangements (effectively blocking some distribution channels). If you are not willing to compete in your new market space, then you still have the option of licensing or selling your technology outright to those businesses.

Industry growth and stability

Your feasibility study needs to closely analyse target market sectors that are shrinking, or particularly susceptible to economic or environmental factors. Try to identify economic conditions and growth trends within the market where your product or invention will be sold.

Trade barriers

Regulations and standards vary significantly from product to product and between international markets. There are even variations down to a state or local level. If barriers may restrict the distribution of your product or idea in a target market, you need to investigate the potential impact of this on your commercialisation efforts. Strategies to minimise such barriers may exist, but the expense or effort in doing so may not prove commercially viable.

Protecting intellectual property

Intellectual property (IP) protection needs to be considered from the time of idea conception. You should seek advice from your organisation’s internal experts on IP or an appropriately qualified solicitor or patent and trademark attorney. Read more about IP.

Pricing your new product or service

The retail price of your finished product or service, and the size of the market with the buying power and willingness to purchase at that price, are two of the most important aspects of commercial feasibility. If you will not be able to sell enough of the product or service to the final consumer at a price that covers the costs of production, marketing and distribution, then you need to think seriously about the viability of the new venture. Read more about pricing products and services.

Export potential

The limited size of the Australian market and the lure of valuable foreign exchange and massive international markets mean strong consideration needs to be given to your business's export potential and ability. Restricting your product or service to the Australian market may limit your business growth and ability to attract venture capital.

Expected product or service life cycle

Determine, through a market feasibility study, how long the expected life cycle of your product or service will be. Ideas with short-term life cycles (i.e. less than 6–10 years) may have difficulty attracting investment capital. You need to demonstrate the wide range of market applications for your product or service, or the ability to update or make design iterations that will ensure its longevity. The potential to offer multiple units or designs at varying prices can aid successful marketing.

Distribution plans

Physical distribution of a product or rollout of a service requires a well-planned, well-financed marketing and distribution strategy, particularly if you are marketing internationally. For products, this generally involves establishing a system of agents and distributors to sell and ship your products to end users. If your management team lacks sales experience in your target market, the complexities and expense of establishing and monitoring a distribution system may require you to consider alternative marketing strategies, including licensing, assignment, or joint ventures.

Long term revenue flow

Every product category has a limited life. Software, for example, tends to have a short product life cycle unless it is updated and upgraded to meet the competition. Therefore, your feasibility study should assess how long your product or invention can expect to be in the market before it is superseded, is made redundant or falls to market competition.

Working capital requirements

Once your feasibility study has been completed and IP protection has been addressed, it may be time to consider developing your idea to the next stage. This involves identifying what resources – cash, human and technical – are required to take your technology through the pre startup or proof of concept stage. This includes deciding on a commercial structure for your business and development of a preliminary business plan identifying seed capital requirements.

Have the right team

The ability to bring together an experienced and capable team, including technical as well as sales and management staff, is key to the success of most new ventures. Environmental factors or a lack of human resource management skills can prove a major impediment to finding and keeping the right staff for your business.

Generating revenue

At an early stage in the commercialisation process, you need to start thinking about how your idea will make money. Will you manufacture, licence or sell your technology outright? Each of these needs different business structures and levels of investment in development and marketing.